ENERGY: U.S. investors head for ethanol industry

Fortune magazine predicts that within five years ethanol could "go from a mere sliver of the fuel pie to a major energy solution", writes Pat Byrne.

As a vote of confidence in the biofuels industry, Fortune magazine has published an investor's guide to playing the ethanol boom in anticipation of a massive expansion in US ethanol production.

According to Fortune (January 24, 2006), one of America's leading business magazines:

"An unlikely alliance of venture capitalists, Wall Streeters, automakers, environmentalists, farmers, and, yes, politicians is doing more than just talk about ethanol's potential. They're putting real money into biorefineries, car engines that switch effortlessly between gasoline and biofuels, and R&D to churn out ethanol more cheaply.

"Even the cautious Department of Energy predicts that ethanol could put a 30 per cent dent in America's gasoline consumption by 2030."

Breakthrough

Ethanol is made by fermenting sugars from sugar cane, corn and other organic materials. But the big breakthrough has been the development of new enzymes that can turn cellulose in plants into simpler sugars, dramatically increasing the amount of ethanol produced from a crop.

The beauty of this "cellulose-ethanol" is that it comes from what has been crop trash - cornstalks, grasses, tree bark, bagass (the fibre left over from crushing sugar cane). These are abundant fibrous stuffs that humans can't digest, so ethanol can be produced from crops without compromising the food supplies.

Although the production of cellulose-ethanol is an engineering challenge, it has become the focus of much research funding.

Fortune predicts that within five years ethanol could "go from a mere sliver of the fuel pie to a major energy solution". As that happens, says Vinod Khosla, a Silicon Valley venture capitalist who has become one of the America's most influential advocates of biofuels, "I'm absolutely convinced that without putting any more land under agriculture and without changing our food production, we can introduce enough ethanol in the US to replace the majority of our petroleum use in cars and light trucks."

There are now over five million flex-fuel cars on US roads, capable of running on fuel containing 85 per cent ethanol. A special computer chip sensor under the bonnet detects what fuel combination the car is running on and adjusts the engine to that fuel.

According to Fortune, "Ford is working with VeraSun, a startup in South Dakota, to promote E85 fueling stations. Shell is the primary backer of Canada's Iogen, which is attempting the first large-scale production of cellulosic ethanol ... at a pilot plant in Ottawa. ...

"Exxon Mobil has pledged $100 million to Stanford University for research into alternative fuels. The oil giant's new CEO, Rex Tillerson, visited the campus last year to hear what researchers are cooking up. Biology professor Chris Sommerville says the change in the industry is palpable: 'I went to six scientific conferences on biofuels last year; the previous 29 years I didn't go to any.'"

California governor and actor-turned-politician, Arnold Schwarze-negger, is backing a ballot initiative that would encourage service stations to offer ethanol at the pump. Big oil companies like Shell and Exxon Mobil are funding ethanol research.

The US Government pays a 51-cent tax credit for every gallon of ethanol they blend into car fuels, providing a major incentive for the ethanol industry. However, ultimately the industry has to be driven by consumer demand. This is what has happened in Brazil.

The SBS Dateline program (March 15, 2006) recently focused on the rise of the Brazilian ethanol industry. Dateline pointed out that, "Faced with a dramatically escalating fuel bill, during the first oil crisis in the 1970s, Brazil's then military-led government bankrolled the ethanol industry's evolution - first by funding scientific research, next by mandating ethanol use and then by dictating production level."

Today, the Government has stepped aside and the country is the world's largest exporter of sugar and the biggest producer of ethanol, responsible for 45 per cent of global production. Ethanol makes up 40 per cent of the fuel in Brazilian cars.

Saving on oil imports

The domestic ethanol industry has saved Brazil an estimated US$69 billion in oil imports. That money has stayed in the country and is "revitalising once depressed rural areas," according to Fortune. "More than 250 mills have sprouted in southeastern Brazil, and another 50 are under construction, at a cost of about $100 million each."

There are 1.3 million flex-fuel cars on Brazil's roads, and by 2007 they will constitute 83 per cent of all new car sales. Today, 100 per cent of GM and Volkswagen vehicles are sold in the flex-fuel configuration in Brazil, according to Dateline.

While the Australian Government has still refused to take decisive steps to build a serious ethanol industry, the top-selling General Motor's car in Brazil is the Holden Commodore, exported from Australia to Brazil. There it is called the Omega and runs on 25 per cent ethanol.